Question

which of the following would be considered a product cost for external financial reporting purposes?

A) cost of a warehouse used to store finished goods.

b) cost of guided public tours through the company's facilities

c) cost of travel necessary to sell the manufactured product

d) cost of sand spread on the factory floor to absorb oil from manufacturing machines

Answer 1

The Answer to above question is:

Option d) :cost of sand spread on the factory floor to absorb oil from manufacturing machines

Reason:This is referred as product cost because with the sand spread on th factory floor oil will be produced or absorbed. Product cost are only incurred if they are acquired or absorbed or produced.These cost generally consists of Inventory Asset. It includes Direct Material, Direct labour, Factory Overhead. As Sand spread will be considered as factory overhead .As it will contribute for the production of product so it will be considered in Product Cost.

Other Options:A) ;b) ;c) will be considered as Period Costs.

Reason:These are the costs which are associated with the passage of time. It will be incurred whether a product is produced or not. The costs which are given in the above options are based on general and administrative expenses like warehouse cost, travelling expense, utilities.

From the above I want to conclude

Option d) is the correct answer

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